Air pas­sen­ger traf­fic grows 22%, but sup­ply may out­pace de­mand: ICRA

Customer Click - - RESEARCH NOTES - ICRA -

The domestic pas­sen­ger traf­fic growth for FY2017 stood at 21.8%, in line with ICRA es­ti­mates and the in­dus­try re­ported sec­ond con­sec­u­tive year of ~22% traf­fic growth. The growth was pri­mar­ily pro­pelled by in­creas­ing sup­ply in the in­dus­try through fleet ex­pan­sion by ex­ist­ing air­lines and scale up by new air­lines. Higher sup­ply, in­tense com­pe­ti­tion and re­sul­tant lower air­fares were the key growth driv­ers dur­ing FY2017. The growth in ca­pac­ity ad­di­tion, which typ­i­cally lags pas­sen­ger traf­fic growth, caught up dur­ing FY2017 with ~20% growth.

The fleet ex­pan­sion also re­sulted in ad­di­tion of size­able ca­pac­ity on in­ter­na­tional routes. Though the pas­sen­ger traf­fic growth on in­ter­na­tional routes in FY2017 was a mod­er­ate 8.4%, the In­dian air­lines, with YOY growth of 11.8%, out­per­formed the in­dus­try growth on the back of ca­pac­ity ad­di­tions. Re­sul­tantly, mar­ket share of In­dian car­ri­ers on in­ter­na­tional routes crossed 35% for the first time in the last 5 years.

The domestic pas­sen­ger traf­fic growth dur­ing March 2017, how­ever, re­mained mod­er­ate at ~15% for the sec­ond con­sec­u­tive month. The in­dus­try PLF re­ported a YOY de­cline for the first time in last 9 months, which might be an in­di­ca­tion of sup­ply out­pac­ing de­mand.

In spite of in­creased com­pet­i­tive in­ten­sity, Indigo con­sol­i­dated its lead­er­ship po­si­tion with over 40% domestic mar­ket share for FY2017, which was a re­sult of rapidly ex­pand­ing fleet cou­pled with lower yields. Jet Group and Air In­dia Group were the big­gest losers of mar­ket share dur­ing the year, whereas new air­lines - Vis­tara and Air Asia - con­tin­ued to ex­pand their re­spec­tive mar­ket shares grad­u­ally. Sus­pen­sion of oper­a­tions of 2 re­gional air­lines – Air Pe­ga­sus and Air Costa – re­sulted in con­trac­tion of mar­ket share of re­gional air­lines dur­ing the year.

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